First-Time Home Buyers Shrinking Share of Market
The National Association of Realtors reports first-time buyers are a shrinking share of the market, only 27 percent of buyers, compared to 40 percent in more normal market. Itís not that young households donít want to buy.† Itís that desire is not matching up with their ability.† Many young households are saddled with student loan debt while job creation and wages have been heading up only slowly.† And the qualified mortgage rule that took effect this year to ensure lenders donít make bad loans wonít help, since it tightens how much student loan and other debt loan applicants can carry.
This situation is worrisome, because all of the recent growth in household formation has been among renters.† Unless a healthy portion of todayís 40 million renter households become homeowners, the housing market will continue to struggle.
There are two issues to be tackled if first-time buyers are to get back to more normal levels.† First, we must monitor the impact of the Qualified Mortgage Rule to see if lenders are being to risk averse. There is reason to think they are, because mortgage default rates have been at historic lows in the last few years.† That suggests lenders have restricted underwriting too much.† Second, builders need to step up home building, bringing construction levels closer to historical norms.† More inventory helps tame price growth, and it gives buyers something they donít have much of now: selection.
The housing market continues to struggle.† In 2000, when the market was rather boring, with no bubble and no crash, there were 5.2 million existing-home sales and 1.6 million housing starts.† Today, home sales are struggling to reach 5 million annually and new starts total only about 1 million, yet the country has 34 million more people and mortgage rates remain historically low.